Activision Blizzard had $1.14 billion in digital sales during the second quarter of 2011, up from $967 million for the same period last year.

Digital sales were 37 percent of the company’s revenue, which as a percentage of overall revenue, was up 27 percent over the previous year.

These numbers underscore the growing importance of digital distribution for games and are additional data points showing that the market is shifting to a greater percentage of products being downloaded directly by consumers.

One thing that needs to be considered is California’s internet taxation where online sales will be subject to sales tax, regardless of where the consumer resides since the majority of Activision’s business is in Santa Monica, California. This will be an area to watch as online game companies start to fight the newly passed bill that will definitely cut into profits.

Unfortunately, California’s lawmakers don’t have the foresight to see how digital commerce jobs will be moving out of the state and into new corporate entities. For a parallel, they need only look at how Amazon has reacted to taxation of internet sales by moving operations from states that choose to impose the taxes, to those that would rather have their citizens employed and taxed on payroll and income.

We would expect to see more online game companies moving their operations and especially billing outside of California in the next 18-24 months to remain competitive and protect shareholder value.

According to the Interactive Skills Integration Scheme (ISIS), which is funded by Australia’s Department of Education, Employment and Workplace Relations, Australia has:

  • 931 full-time developers
  • 126 studios around the country

This is a major decline from 2008 when the country had more than 2,000 game developers working in the industry. ISIS project director Justin Brow attributed part of the decline to the work for hire market drying up and projects going internal at most of the publishers.

The country had focused on very few original IPs on console platforms, but has had success on iPhone with Firemint and Half Brick leading the pack.

Countries looking to get their fair share of the market need to consider a few things:

1) If you compete on price for work-for-hire projects, it should be a transitional period to build skill sets and experience towards developing original IPs. Most countries have rising labor costs as skills are acquired and experience gained among the workforce. This advantage is lost as the next country competes on price as it builds its workers’ skills.

2) Canada, with its tax incentive programs, is the #1 competitor to all countries with a trained and skilled workforce in the creative media industries. When the price is subsidized and the geographical location is more favorable, it’s impossible to compete. You can’t move geographically, but you can subsidize a worthwhile industry that will bring in tax revenues in excess of the incentives. The long-term training of the indigenous workforce is also a major benefit of these programs.

3) The barrier to creating a game and commercializing it is almost non-existent today. The barriers to getting a wide audience are making a quality game and finding the channels for distribution and awareness building. Marketing tends to be a black art among many developers, but it really needs to be a consideration early in the development process. Governments can support their creative industries by providing training on marketing and distribution, as well as general business administration and economics skills. These are essential for any business and don’t have to be industry specific.

4) A healthy games industry means more skilled knowledge workers which boosts tax revenues and average household income. These reflect positively upon a government when it is creating and supporting higher paid jobs and building a larger tax base. The most successful example of this is of course Canada. Everyone should follow Canada’s lead to some degree.

The Entertainment Software Association released its annual report a couple of weeks ago. We took the time to go through it and pull out some of the most interesting facts. The full report is available here for free. Here are the key data points.

Buyer Demographics:

  • The average age of game buyers is 39

Growth in Online Games:

  • 57% of male game players play games online more than one hour per week
  • 43% of female game players play games online more than one hour per week

Types of Online Games Played Most Often:

  • 43% puzzle/board/trivia/card games
  • 21% action/sports/strategy/role-play games
  • 16% MMO games

Paying to Play Online Games:

  • 23% of frequent users pay to play games online
  • In 2003 only 5.2% of frequent users paid to play games online

Parents’ Opinions of Games:

  • 63% of parents believe games are a positive part of their children’s lives
  • Parents are present 92% of the time when games are purchased or rented
  • 94% of parents monitor the content of the games their children play

Games for Training

  • 70% of major employers utilize interactive software and games to train employees
  • More than 75% of businesses and nonprofits already offering video game-based training plan to expand their usage in the next 3-5 years

Government Regulation and Piracy

  • In FY 09, a total of 161 bills (80 in 2008 and 81 in 2009 to date) affecting computer and video games were introduced in 37 states
  • None of the pending bills from 2008 were carried over to the 2009 legislative session
  • Italy is the worst country with regards to Peer-to-peer game piracy
  • Consumers downloaded nearly 6.5 million illegal copies of games across 223 countries, regions or territories
  • The top two pirated games accounted for 4.7 million of these downloads, a figure that far exceeds those games’ legitimate sales for that period.

Leading downloader countries

  • Italy (17.1%),
  • Spain (15.1%)
  • France (7.9%)
  • Germany (6.9%)
  • Poland (6.1%)

Networks used to pirate games

  • Telecom Italia (Italy) 11.6%
  • Telefonica de Espana (Spain) (7.8%)
  • France Telecom (France) (3.9%)
  • Polish Telecom (Poland) (3.6%)
  • Deutsche Telecom AG (Germany) (2.6%)
  • IUnet (Italy) (2.1%)
  • Neuf Cegetel (France ) (1.6%)
  • Jazz Telecom S.A. (Spain) (1.57%)
  • Free SAS (France) (1.56%)
  • Uni2 (Spain) (1.53%)

The Finnish government awarded their game industry 10 Million in 2008 after identifying the sector as “strategically important” according to Develop. Finland currently has:

  • 50 Game companies
  • 5.3 Million people
  • 87% of game revenue is export revenue
  • Game industry export revenue was 69 million in 2007
  • Game industry export was 75 Million in 2008
  • 40% of Finnish game companies have external investors
  • In 2007 subsidies covered almost 30% of game studio R&D investment
  • 24 of 45 companies surveyed in 2008 by Neogames received funding for R&D, exports or both in the two years the study covered
Develop will be running a series of features on the individual companies over the next week.

The Provincial government of Ontario will invest $263 million over the next decade according to the National Post. This is in addition to Ubisoft’s commitment of $500 million over the same time period. The studio is expected to create an additional 800 jobs in the province.

One of the issues that studios are running into in Canada is the high cost of new hires. While this is offset by generous government subsidies, the technical programs at the universities are almost fully subscribed and the graduating class is almost entirely placced prior to graduation.

Bringing in developers from the rest of the world has raised the cost of new hires in recent years, however the government support continues to make certain provinces (Quebec and now Ontario) some of the most desirable places to develop AAA-Quality games in the Western World. This new commitment by another Canadian province is sure to set off additional debate in Canada from British Columbia’s game development communit as it is difficult to compete even on an intra-provincial level without comparable government support.

Taiwan is now subsidizing 40% of the development costs for six studios that are creating projects for the PlayStation 3 and PSP platforms. According to the Taipei Times, the studios include:

  • XPEC Entertainment Inc (樂陞科技)
  • Intersev International Inc (昱泉國際)
  • Yeck Entertainment Co (耶克娛樂)
  • SOGA Interactive Co (果子獸)
As well as telephone operators:
  • Tatung InfoComm Co (大同電信)
  • Far EasTone Telecommunications Co (遠傳電信)